RYTM - Rhythm's Imcivree Warrants Caution Despite Clinical Progress

2023-03-15 13:24:40 ET

Summary

• Rhythm Pharmaceuticals focuses on rare genetic disorders of obesity and its lead drug, Imcivree, treats obesity due to specific genetic deficiencies.
• Imcivree's use is limited to specific genetic disorders that affect a small number of patients, which limits Rhythm's revenue stream to a small market size.
• In efforts to increase their market size, Rhythm has started Phase 3 trials for setmelanotide, including in hypothalamic obesity and genetically defined diseases related to the MC4R pathway.
• However, I'm cautious about recommending investment in Rhythm & Imcivree due to questionable efficacy data, safety concerns, and potential for worsening depression in susceptible patients. Clinical studies have limitations, and real-world patients may not be as carefully selected.
• My assessment of Rhythm's stock is to "Avoid" it, but given the limited options of Strong Buy, Buy, Hold, Sell, or Strong Sell on Seeking Alpha, I would suggest "Sell" as the closest representation of my opinion.

Introduction

Rhythm Pharmaceuticals ( RYTM ) is a biopharmaceutical company that focuses on developing and commercializing treatments for rare genetic disorders of obesity. Its lead drug, Imcivree (setmelanotide), is a melanocortin 4 receptor agonist used to treat obesity due to proopiomelanocortin (POMC), proprotein convertase subtilisin/kexin type 1 (PCSK1), leptin receptor gene (LEPR) deficiency, or Bardet-Biedl syndrome confirmed by genetic testing.

The following article serves to detail Rhythm's prospects and risks in genetic obesity disorders.

Financials

Let's first review Rhythm's most recent financial report .

Rhythm Pharmaceuticals had $333.3 million in cash and short-term investments as of December 31, 2022. Product revenue, net, from Imcivree was $16.9 million for the year ending December 31, 2022, an increase from $3.2 million in 2021. The company's research and development expenses were $108.6 million, and selling, general, and administrative expenses were $92.0 million in 2022. For the year ending December 31, 2022, the net loss was $181.1 million, compared to $69.6 million in 2021.

Understanding Genetic Causes of Obesity and Their Management

Obesity is a complex condition caused by a combination of genetic, environmental, and behavioral factors. One group of genes that have been implicated in the development of obesity is the POMC, PCSK1, and LEPR genes . These genes play a critical role in the regulation of appetite and energy balance.

Mutations in the POMC or PCSK1 genes can cause a deficiency in the production or processing of the hormone melanocortin, which is responsible for signaling the brain to reduce food intake and increase energy expenditure. Similarly, mutations in the LEPR gene can impair the body's response to the hormone leptin, which regulates appetite and metabolism.

Another genetic disorder associated with obesity is Bardet-Biedl syndrome , which affects multiple genes and is characterized by obesity, vision loss, and other symptoms.

Outside of setmelanotide, there are no specific treatments for genetic causes of obesity. However, the management of obesity in individuals with POMC, PCSK1, or LEPR gene mutations can include lifestyle modifications such as a healthy diet and exercise. In some cases, other medications or bariatric surgery may be considered, but their efficacy in individuals with genetic causes of obesity is not well established.

For individuals with Bardet-Biedl syndrome, treatment involves the management of the various symptoms associated with the disorder, including obesity. This may involve a multidisciplinary approach with a team of healthcare professionals, including a nutritionist, ophthalmologist, and endocrinologist.

Imcivree for Genetic Obesity Disorders

Imcivree (setmelanotide) is a drug that works by activating melanocortin 4 receptor (MC4R) in the brain, which is involved in regulating hunger, satiety, and energy expenditure. It is believed that Imcivree can help reduce food intake and promote weight loss in patients with obesity caused by rare genetic disorders, such as POMC, PCSK1, or LEPR deficiency, or Bardet-Biedl syndrome (BBS) associated with insufficient MC4R pathway activation.

According to Rhythm,

Our epidemiology estimates are approximately 4,600 to 7,500 for U.S. patients in initial FDA-approved indications, including obesity due to biallelic POMC, PCSK1 or LEPR deficiencies, and BBS. Epidemiology estimates for patients with hypothalamic obesity is between 5,000 and 10,000 in the United States, based on our analysis of published literature and our epidemiology estimates for the indications being studied in our Phase 3 EMANATE trial suggest that approximately 53,000 U.S. patients with one of these genetically driven obesities have the potential to respond well to setmelanotide.

Rhythm

Study Results: Imcivree's Efficacy in Patients with Genetic Obesity

Patients with homozygous or presumed compound heterozygous pathogenic, likely pathogenic variants, or VUS for either the POMC or PCSK1 genes ( Study 1 ) or the LEPR gene ( Study 2 ) were enrolled. Patients with double heterozygous variants in two different genes were not eligible for treatment with Imcivree. The patients underwent a dose titration period for 2 to 12 weeks, followed by a 10-week open-label treatment period with Imcivree. Patients who lost at least 5 kilograms or 5% of their body weight during this period continued into a double-blind withdrawal period of eight weeks, including four weeks of Imcivree followed by four weeks of placebo. After the withdrawal period, patients resumed treatment with Imcivree at their therapeutic dose for up to 32 weeks.

In Study 1, the efficacy analysis was conducted on patients with POMC or PCSK1 gene deficiencies who completed at least one year of treatment at the prespecified data cut-off. Out of these patients, 80% achieved a weight loss of ?10% after one year of Imcivree treatment. In Study 2, the efficacy analysis was conducted on patients with LEPR gene deficiencies who completed at least one year of treatment at the prespecified data cut-off. Out of these patients, 46% achieved a weight loss of ?10% after one year of Imcivree treatment. Patients who had lost at least 5 kilograms during the open-label period and had treatment withdrawn regained weight, but subsequent re-initiation of Imcivree resulted in weight loss.

Imcivree appears to be an effective treatment option for managing chronic weight issues in patients with obesity caused by POMC, PCSK1, or LEPR deficiency. However, the small sample size and open-label design of the study limit the generalizability of the findings. Nonetheless, the results indicate that Imcivree has the potential to offer benefits for patients with these specific genetic causes of obesity.

My Analysis & Recommendation

Imcivree's effectiveness in treating obesity due to rare genetic disorders has made it a viable treatment option for patients with POMC, PCSK1, LEPR deficiencies, or Bardet-Biedl syndrome. As of November 2020, the drug was approved in the US for patients with obesity due to POMC, PCSK1, or LEPR deficiency confirmed by genetic testing. In June 2022, it received US Food and Drug Administration (FDA) approval for treating obesity in patients with Bardet-Biedl syndrome. Additionally, in September 2022, the European Commission granted approval for the drug's use in the European Union for treating obesity due to genetic disorders.

Despite Imcivree's efficacy, it is worth noting that the drug's use is limited to specific genetic disorders, which only affect a small number of patients. Rhythm also needs to devote substantial resources to manage and verify genetic tests that confirm whether Imcivree is suitable for use. Therefore, Rhythm's revenue stream is derived from a relatively small market size. Notably, the company conducted a successful Phase 2 trial for setmelanotide therapy in patients with hypothalamic obesity, where most patients achieved the primary endpoint of a BMI decrease greater than 5%. As a result, a Phase 3 trial was initiated in early 2023. The company is also conducting Phase 3 trials in genetically defined diseases related to the MC4R pathway, a Phase 3 pediatrics trial, and a Phase 3 switch trial testing a weekly formulation of setmelanotide.

However, there are a few reasons why I'm cautious about recommending investment in Rhythm Pharmaceuticals and Imcivree. Firstly, the reliability and generalizability of the drug's efficacy data may be questionable due to potential unblinding caused by skin darkening in patients treated with Imcivree, as well as the small sample size and treatment duration of clinical studies. Secondly, the drug's safety profile is not entirely clear, and there is a risk, in my opinion, of serious adverse effects emerging while it is on the market.

One particular concern is the potential for the drug to worsen depression and suicidal ideation in patients who are already prone to these conditions, such as those with hypothalamic obesity . Despite the exclusion of patients with suicidal ideation and DSM-III disorders that may interfere with study compliance, depression/depressed mood (26%) and suicidal ideation (11%) were reported in both adult and pediatric patients during clinical studies. Bear in mind, patients in real-world settings won't be meticulously selected after fulfilling numerous criteria.

My assessment of Rhythm's stock is to "Avoid" it, but given the limited options of Strong Buy, Buy, Hold, Sell, or Strong Sell on Seeking Alpha, I would suggest "Sell" as the closest representation of my opinion.

Risks to Thesis

As for the risks to my bearish thesis, there are a few potential factors that could alter the outlook for Rhythm Pharmaceuticals and Imcivree. One possible risk is the expansion of the drug's approved uses to more indications beyond the current limited genetic disorders. If Imcivree proves to be effective in treating other forms of obesity or eating disorders, it could significantly increase the market size and revenue potential for Rhythm.

Additionally, the ongoing clinical trials for diseases related to the MC4R pathway and hypothalamic obesity may yield positive results, leading to further FDA approvals and revenue growth for the company.

Another potential factor to consider is the possibility of competition emerging in the market. While Imcivree is currently the only drug approved for the specific genetic disorders it targets, other companies may develop similar treatments in the future, potentially cutting into Rhythm's market share.

It is also worth noting that the safety concerns surrounding Imcivree may prove to be less significant than initially thought, and the drug could have a better safety profile than current data suggests.

Overall, while there are risks to the bearish thesis on Rhythm and Imcivree, the concerns regarding efficacy data reliability, safety, and limited market size are significant enough to warrant caution. As such, my recommendation remains to "Sell" Rhythm's stock.

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